Setting up your own self-managed super fund (SMSF) can have its advantages, but it is not for everybody. And if you have less than $200,000 in super, then the administrative costs would probably make the venture uneconomical. In addition to establishment costs, you can expect to spend some $1000 to $1500 a year on running your fund.

Aside from costs, you also need the skills and time to manage your own fund, both of which can prove onerous.

Nevertheless there are some advantages in having your own super fund, not least that it gives you greater control over your investments – and a wider choice of assets in which to invest. But the sole purpose of an SMSF must be to provide money for your retirement so you cannot use assets in the fund for your current enjoyment.

If you decide to establish your own, where do you start? According to the Australian Taxation Office, there are four key steps:

Establish the trust

Elect to be a regulated fund, obtain a tax file number and an Australian business number

Prepare an investment strategy

Open a bank account

The first thing you need to do is prepare a trust deed. For this you should talk to your accountant, solicitor or a legal service company. Be mindful that while your accountant or solicitor may be able to help you establish the SMSF, they cannot advise you on whether it is the right financial decision for you unless they hold an Australian financial services licence.

The trust deed sets out such matters as the details of the trustees, how they are appointed, their powers and the conditions for contributions and benefit payments. You must make sure the trust deed is dated and properly executed.

All SMSFs must have trustees and in turn all members of the fund must be appointed trustees. Anybody aged over 18 can be a trustee as long as they have not been convicted for an offence involving dishonesty or are undischarged bankrupts.

As a trustee, you are legally responsible for the actions of the fund. Your responsibilities include filing an annual tax return, lodging member contributions statements and appointing an approved auditor to complete the annual audit.
The next step is to elect to be regulated by the Superannuation Industry (Supervision) Act (SISA) in order to receive concessional tax treatment.

As trustees, you have 60 days to lodge your election with the Tax Office. You do this by completing an application form to register for the new tax system superannuation entity. This can either be done online at the Australian Business Register (www.abr.gov.au) or by contacting the Small Business information line on 13 28 66.

On submitting this form, you will be issued with a tax file number and an Australian business number.

Once you have elected to be regulated, then the decision cannot be reversed without winding up the fund.

Preparing an investment strategy is the next step. This involves formulating a strategy that takes into account risk, return, diversification, liquidity, cash flow, asset allocation and the ability to discharge existing and prospective liabilities.

It is here that you may need the help of a licensed financial adviser to steer you in the right direction.

The fourth step is to open a bank account in the name of the fund to keep your superannuation fund assets separate from your personal assets.

Running your own self-managed super fund is not for the faint hearted. Severe penalties an apply if you contravene the requirements set out in the legislation, such as failing to meet the sole purpose test of saving for your retirement or the fund borrowing money to invest.